Episode 12: Prepare your business for the year ahead

Predicting the future is a challenging, but necessary, part of running a functional small business. So what will 2016 hold in store? And how can you look at past trends to make future predictions?

In this episode of Xero In, futurist and innovation strategist Anders Sorman-Nilsson drops by to chat to Rob and JV about the year ahead. By considering past trends, current demographics and ongoing patterns in technology and disruption, ASN discusses a few of the major changes set to rock the small business scene.

“By the end of this decade what you'll see is that 90 percent of IT budget will be controlled by non-IT business functions,” he predicts. “You're also going to see a lot of small to medium sized businesses going out of business in the next few years as a result of not adopting technology or not adapting. It's simply not a choice if you want to stay in business.”

Episode transcript

JVD: Welcome back to Xero In, Australia's most exciting business podcast. I'm JV Douglas and I'm here joined by RS.

RS: Hi JV. How are you?

JVD: Very, very well and very excited as usual about today's guest because he does something that a lot of people are kind of sceptical about.

RS: That's right. Anders Sorman-Nilsson, Australian-Swedish futurist innovation strategist. He takes a really unique bent on what a futurist is and he calls himself a reverse historian, which I find fascinating.

JVD: The thing I was also intrigued about is that he has this really personal insight into what a futurist is and does because he's constantly arguing, it turns out, with his own mother and her family business, which is a bricks and mortar retailer. He's trying to drag her kicking and screaming into the future. He's actually every day hitting up against the challenge of taking traditional businesses into the digital age.

RS: Yeah, and all the context throughout the interview, as well, brings it back to making it relevant to something that I can understand, which is great.

JVD: He's got that insight. Let's hear more from Anders.

JVD: Our guest today on Xero In is Anders Sorman-Nilsson. He's a futurist and an innovation strategist, and he's currently in Miami about to present at a conference. Welcome to Xero In.

ASN: Thank you. Great to be with you here virtually from the past. We get to dial into the future in Australia.

RS: Anders, how did you get into becoming a futurist?

ASN: My mum still asks me this question, right? Can you imagine anything more annoying than sitting at the tea party and trying to convince your lady friends that your son has a real job as a futurist? She goes, "You would have caused way less trouble if you just stayed in your former profession of the law at Clayton U," which is where I once worked in 333 Collins St in Melbourne once upon a time, before I ventured on this path of becoming a futurist.

Which is really kind of like a reverse historian. In many ways, we look at historic and present day data. We look at projections and extrapolating the data to draw some potential scenarios of the future. Building different scenarios based upon, say, demographics, technology trends, or even health trends.

One example of what a futurist might do and be able to deduct to then be able to provide concrete advice to businesses, which is what we do with Fortune 500s as well as small to medium sized businesses globally is to, say for example, look at Australian demographic trends which show that Australia has an aging or greying population. We are getting older and we are not replenishing with younger people in our population. And if you take that demographic trend of the aging population, together with the fact that more and more Baby Boomers, for example, as well as the general population, are suffering from chronic diseases such as diabetes, for example. That health trend, and you combine it with a tertiary trend, which would be the uptake of smartphones and mobile phones, and the fact that we can now, say, monitor our blood-sugar level at each mealtime. You have a pretty good suspicion, probably based upon those trends, or those mega-trends, that mobile health might be a real trend that we should be investing in for the future.

Essentially we travel the world doing research, speaking at conferences, doing scenario planning and strategy planning for large as well as small to medium sized businesses.

RS: What about the immediate future? You have global waves of change that can sweep through small business and they sink or swim, but they have no control over that. Do you see any big trends coming through in 2016?

ASN: Yeah, absolutely. We always try and look at, together with the likes of Gartner, which is a client of ours, the kind of hype curves of technologies that might get talked about in media a lot, but they're not necessarily ready for what Gartner refers to as the plateau of productivity which is when businesses can actually implement them. You're seeing a lot of trends right now that have moved to the plateau of productivity. Things that we have talked about for a long time that I think that small to medium sized businesses can tap into.

One of those, for example, would be cloud services, right? Our business, Thinque, the Sydney office runs on Xero. No surprise, right? We love it as a cloud-based accounting software that plugs into a number of the different financial partners that we have and gives our accountant a great view over our finances and can also hook into a number of the back. Cloud is something that businesses can now monetise on and also run their businesses and processes a lot more smoothly.

JVD: That's a really interesting example actually. Because when cloud first emerged, and I'm thinking sort of way back to the days of virtualisation technology in 2007 or thereabouts. It wasn't a trusted technology, and it wasn't a technology that people felt safe in using. The initial response would have been quite pessimistic but ultimately it should have been optimistic. Do you have sort of an interesting task in encouraging business and some of your clients to be optimistic about trends that they're initially concerned or worried by?

ASN: We get to deal with a whole gamut of what the social observer, Roger Everett, would term "the law of diffusion of innovations", which is that society is essentially divided between people who have a certain propensity to adopt new technology, right? You've got the innovators, you've got the early adopters, you've got the early majority, the late majority, as well as the laggards.

At our firm, at Thinque, we get to deal with everything from the innovators all the way through to the laggards. We have to pitch technology in a variety of different ways. I always say we have to make "it", or make IT sexy now for an increasing amount of non-IT buyers. Again, from Gartner, we have an analysis saying that by the end of this decade what you'll see is that 90% of IT budget will be controlled by non-IT business functions. It used to be that someone who spoke technology without an accent, like a digital native nearly, used to control the IT budget and an IT vendor could simply talk about 1s and 0s and give some advice and the buyer would understand him or her. That's a very different proposition.

For example, I have to sell technology to my mom who runs a nearly 100 year old menswear store in Stockholm, Sweden called Georg Sörman, or in Australian, "George Sorman". Kind of like the Henry Bucks of Sweden. Wonderful family owned and operated business since 1916. I had to sell her on IT. My mom is kind of my toughest pro bono client and add to that sort of family dynamic, the annoyance of having a futurist as her son. We do think about big technology very, very differently. She sees new consumer and technological behaviors, or the behaviors driven by technological adoption, as being sort of cyberterrorism that is digitally hacking her business model.

Such as when Gen Ys or Gen Zs come into the store, they scan bar codes and do real-time comparisons online and then order the item on MrPorter.com or Amazon.com/Fashion. Highly disruptive to my mom's business model.

Just like digital disruption is brutalising her revenues and the profitability of her business, so I think digital holds the key to her future. Such as being able to manage her inventory in smarter ways with technology platforms. Using GS1's technology of the wonderful bar codes to kind of tell the story of where a particular piece of textile came from to prove it's provenance going all the way back to the cotton farms in Egypt, for example.

Just like digital disruption is disruptive for her, so I have to sell her as a technophobe or a laggard, on the virtues of technology as well. That's not always easy.

RS: You reference the curve of early adopters and laggards. How do you see that playing out? Is it a case of gradual adoption or is it a case of the fast eats the slow, in the sense that the early adopters have a stronger competitive advantage and can almost annihilate the laggards?

ASN: This is a scary proposition, right. Like #NoBabyBoomerLeftBehind. I mean, my mom's not out of the woods yet. In many ways, even though we have a very, very good strategy for her business, instead that culture eats strategy for breakfast. In her business, which is all about tradition, legacy, this is the way we've always done things around here, and that's a really dangerous proposition and unfortunately can also kill even the best futuristic strategies.

Even those that play on the convergence of past, present, and future, or both tradition and technology. You're going to see a lot of businesses, small to medium sized businesses, going out of business in the next few years. Not adopting technology or not adapting either. It's simply not a choice if you want to stay in business.

Although I hear from small businesses all over the world, and you hear this kind of sentiment, which is that I hope I can retire from my small to medium sized business before I ever have to learn how to use technology. I mean, this is the sort of virtuous statement from a laggard that makes me really, really scared.

RS: The new phrase isn't "adapt or die", it's "adapt or retire".

ASN: Exactly, exactly. It's going, I'm so calcified in my thinking that I don't want to learn anything new. Even if it means that I'm not building a future book of business. You've got small to medium sized businesses in Australia facing the exact same scenario.

We do a lot of work, for example, with financial advisors in Australia. The average age of an Australian financial advisor is 55 years of age. Two thirds of the financial advisory market in Australia are Baby Boomers or over the age of 55. Gen Xs and Gen Ys just haven't gone into that space. How do you think that business model looks for the future? Financial advisor, who has only been focusing on pre-retirees, for example. How are they going to fill their book of business for the future? Particularly in an age of regulatory changes and fees for service, et cetera. It's an unsustainable business model and digital startups like Acorns, or even your robotic advisors, are bound to upset and rock the boat, or the apple cart, for a lot of these laggards who will go out of business.

JVD: Tell me, too. You mentioned that culture eats strategy for breakfast. What are the cultural settings that small businesses need to adopt in order to not only effectively embrace the current generation of technology, but prepare themselves to embrace technology in the future?

ASN: The idea here is that even though you might have the greatest strategic intent and the perfect plan for the future, right. Flexible plan. You've done all the scenario planning for your small to medium sized business, for example. You're aware of the trends. You've done your strategy workshops with your senior management team, or your leaders in your organisation. Despite that, cultural inertia and old school ideas of what's worked before render us ignorant, lazy, or even complacent. As a result, unless you have the cultural pillars inside your organisation around, for example, curiosity, a constant willingness to adopt and learn, and a thirst for knowledge, well, you know, the best plan on paper isn't going to work out. That's what we see in organisations around the world, big and small.

RS: When we talk about the robustness that culture provides a small business, do you also look at Black Swan events? The ones that we can't predict that can come out of nowhere and then sweep an economy.

ASN: I don't actually think that there are that many events that we cannot predict. Yes, of course, there is the idea of a Black Swan event, for example. The idea being that no one believed in Europe that black swans existed, there were only white swans, right? Until, of course, Australia was found. We found that, hey, there is such a thing as black swans.

RS: Only in Australia.

ASN: It's difficult to disprove a negative, right? Similarly, as Nick Taleb, the author of "Black Swan", the book, would say, even though the turkey in the United States think they're very well looked after by the farmer who looks after the turkey. They have the best life, they're getting big and fat, they have great food, and they get to make lots of love. Thanksgiving comes around. If the turkey had enough data to go on they might see that their forebears might have suffered what they termed a Black Swan event, but if you zoom out and you look at the patterns, the turkey is doomed from the beginning.

RS: As a futurist, you must look at patterns. In your mind, are there more likely that some Black Swan events would happen than others over the next, let's call it, three years?

ASN: Yeah, absolutely. I think what you'll see increasingly now that the infrastructure for digitised creation is so well built out. Think of the example of the NBN, for example, which is still being rolled out. A broadband around the world, A fibre in certain parts of the world.

Even though my parents live in a house from the early 16th century, their broadband in Sweden enables them to have download speeds of 100 megabytes per second and upload speeds of 180 megabytes per second. This kind of infrastructure enables new over-the-top layers to come in and rob legacy companies and incumbents of their power.

Take a telecommunications company, for example, that's built out all the infrastructure investing in hardware and then you've got a player like WhatsApp coming in building something over the top of that network. They're starting to disrupt, of course, they started with disrupting the SMS market, but of course now we can make phone calls on WhatsApp as well, or via Facebook. That side of the equation also disrupting the huge telephony business as well.

In terms of Black Swan events that are more likely to happen, in a sense, I think you're going to see digital players taking advantage of the great digital infrastructure that's out there and disrupting the people who've built them. We might even ask the question, even in the context of my mom's business, is legacy, tradition, and the wonderful word, "est 1916", is that an advantage from a branding perspective or could it actually be a cultural weakness for a company to be claiming heritage and provenance, for example.

RS: ASN, doesn't that digital infrastructure and the connectedness also make the system more fragile so if there was going to be anything economically that hampered small business over the next few years, that the contagion would spread a lot faster and be a lot more severe.

ASN: Yeah, exactly. I say that we're all getting digitally hacked at the moment, either literally or metaphorically. Literally in the sense that who's likely to get cyber-hacked? Well, companies that are not investing into cyber-security or don't really understand digital technology including small to medium sized business owners which are a direct target of cyber criminals around the world.

Nowadays you can go onto the Dark Web and very, very simply buy a denial of service attack or even stealing credit cards from small businesses online. You can get this as a service if you want. Of course, small to medium sized businesses and digital laggards are going to be affected.

Also, metaphorically we're all getting hacked because digital players understand that they now have a digital economy where they can compete in a much different way where bricks and mortar and the physical world is less important than the digital world. I hate to talk about Uber necessarily, but one example is that they can compete both on cost. You know, they're cheaper than taxis in Sydney. Experience: They will serve you water and turn on the air conditioning when you ask them for it, so the experience is better. Of course, the platform value as well in the digital economy, meaning that they build digital trust between the driver and the passenger even before you set foot into the car.

RS: Also the demographic ownership of the reviews as well. It's no longer someone owning the quality of the brand, but people going in there and saying we use it, we love it, and that's more authentic.

ASN: Yeah, exactly. Uber is a great story of a company that doesn't spend a lot on advertising, right? Just through providing great service and disrupting and solving for the friction that the taxi industry, as a virtual monopoly, has had for so many years. You've got a lot of very angry customers who are very, very happy to switch over. When the taxi drivers in London went on strike in 2014 for a week, these are taxi drivers that are way more educated than the Australian equivalent, they drove up Uber membership by 850% in a week. Clearly, the consumer is very happy to vote with their digits and their switching costs were not very high.

RS: ASN, you talked about digital convergence in an aging demographic as some mega-trends that are flowing through. What other trends are you forecasting or predicting?

ASN: I think the other trend that we are seeing is just the empowerment of the individual. That's a positive and a negative. In many ways, today we have a sort of David versus Goliath scenario where, down to some of the cyber-terrorism or the terrorism attacks we're seeing around the world. Where terrorist using new technologies, they're able to inflict large scale damage really beyond their individual power. What it would've been 50 or 100 years ago, or 200 years ago, and now they can inflict massive, massive damage.

On the flip side, on the positive side of this, it also gives startups and small businesses, family businesses, the opportunity to digitally amplify themselves. To start competing with the big boys. To tell their story in a digitally amplified way. To manage their inventory way better. I think that's an exciting trend. The sort of digital enablement, of people who are adaptive and are able to adopt the new technology.

RS: I love that about technology as well. It's really giving a big shift back to the individual which, when you talk about entrepreneurialism, it's a Godsend.

ASN: Absolutely. Technology is an enabler. Yes, the future may not be a cyber utopia, but as we've alluded to before, the future will be purgatory for those who are complacent, ignorant, or lazy, but it's also going to be the promised land for those who are adaptive, who adopt new technologies, who have a thirst for knowledge, and a curiosity for the new and the enablement of technology.

RS: Now, ASN, you've talked about being a reverse historian as a futurist. If you were to go back in time, let's call it 10 years ago, what are some of the things that have surprised you so much that you didn't see coming?

ASN: I think the surprises are largely from the unintended consequences of technology. Let me give you one example, and this is, for me it's very, very heartening. I wrote about this in my latest book, "Digilogue: How to Win the Digital Minds and Analogue Hearts of Tomorrow's Customers", as well.

It's a story from Kerala, India, about the fisherman of Kerala, India. There's a specific individual called Raj. Raj's family and forebears and including Raj have been fishermen, so they're an aquaculture in Kerala, India. For generations they've always done the same thing after a busy day of work, after they've caught their Barramundi of the day, or the catch of the day.

He's always had the choice of 11 different harbors to go back to, that are equidistant. I.e. It would make rational sense for him to go back to any of the 11 harbors along the Kerala coastline. At the end of each day he usually finds himself in the same market. The one that's closest to his love ones, his family, where he can get some quick rupees or to exchange for some other form of value. He finds himself doing the same old thing, which is that he would mend his net, ensuring that he wouldn't lose any of the yield the next day at work.

Until, one day he realises that he's saved up enough money to buy the Nokia 1100. You might remember the really cool one with the flashlight, another great innovation that came from the ground up in developing countries, and incidentally used to be the major light source in many villages around the world for many years. He picks one of those up because, as I found out in a conference with one of our clients, Bharti Airtel in India, Bharti Airtel had coverage up to 25 kilometers away from the shoreline. His fishing water's 22 kilometers away from the shoreline and according to my friends at Bharti Airtel they said that's the only place in the state of Kerala we actually used to have good coverage at the time.

Of course, this enabled him to make some phone calls while he was out at sea to the 11 different harbors seeing what price based on demand and supply his Barramundi would garner when he got back to shore a few hours later. Do you think he started making different and rational decisions as a result of the mobile infrastructure? Of course he did.

The Economist and The Quarterly Journal of Economics got a hold of this story and case study of what happened around mobilization in Kerala, India. They found that over the course of a year, the net yield for the fishermen who mobilised when up 8% and the cost to the consumer as a result of less wastage withered away by 4%. This should give any economist or finance people, any small business owner, kind of financial goosebumps. Because this was an unintended consequence of the idea of making phone calls. All of a sudden, Raj was not just a fisherman in aquaculture, he was also a futures trader who could change his financial fortunes as a result of this new interface.

I think that's really heartening. When technology gets used in innovative ways to empower new ways of living and very, very adaptive business models.

RS: That is a great story and for me it goes to the heart of what technology does. In particular, access to mobile technology reduces the information asymmetry which blows me away. It will revolutionize things.

ASN: You might ask yourself how you use the mobile interface in your own business, right? We might use it to swipe left or swipe right using Tinder, but is that really the most productive use of our time? Are we really using technology in a way that's going to shift and provide a paradigm shift for your business moving forward?

RS: I agree. I think we're only at the very start of this journey. ASN, thank you so much for your time.

ASN: Fantastic, fantastic.

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VO: If you’d like to try Xero, head to Xero.com, there’s a 30 day no obligation free trial, so go ahead and check it out.

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JVD: What a fascinating conversation.

RS: It really was. The thing that really gets me excited is this whole notion around unintended consequences from the future. As a futurist you're making a lot of predictions and going out there and talking about digital convergence, aging demographics, and almost the democratisation of the individual with technology empowering that change, but at the end of the day there will be unintended consequences which we can't forecast. Which is great.

JVD: It's the ultimate "oops" factor.

RS: For all the small businesses, I think it gave a really strong sense of confidence about, things are going to be okay, regardless of what comes through as long as you're not being complacent, ignorant or lazy, and you're showing that thirst for knowledge, agility for learning, and just basic curiosity.

JVD: Really bringing optimism into it which is so important when you're dealing with unknown, unintended consequences.

RS: Yeah, the unknown unknown.

JVD: Absolutely. And it's great to have everyone back in 2016 and we're really hoping it's going to be a prosperous and fun and fascinating year.